Investment Success 2 of 3

In the first part of this investment trilogy, “MIND” of investment was discussed. In this second part, let’s discuss the “BODY”. This is the part where people were asking, “which investment is good?” “What shall I invest in?”

Firstly I would like to separate investing and trading. Media tends to lump them together. Media’s definition is as long as you put money in the market even for one day, you are an investor.

From my view, those who go in and out of market a few times a day or even a month are consider trader. Those looking for fast money are trader. Those who made buying and selling decision based on everyday market prices are trader.

Traders are not concern with the story behind the investments. An example is what is the profit of a company for the past 5 years. Traders are only concern of the everyday market prices where they can long or short the investment, making money from the difference of buying and selling.

There are many these kind of traders – Stock traders, forex traders, options traders etc. There is a possibilities of traders trading a numerous trades in a day. Morning they are in the market, by evening they are out of the market. Media does called them investor as well, but I prefer to separate them. Because they are really not investors.

Ok, here is a personal preference. I don’t really like traders because I feel they didn’t add any value to the market. What do I mean by that?

If I want to make $10,000, I will create a value, either in products or services of $10,000 or more for other people. There is a value add to the bigger picture. However, in order for a trader to make $10,000, someone just have to lose $10,000. No value added.

Isn’t it the same with all other investment? At first glance it seems the same. There is a trading elements in it, but if you look deeper, you’ll find a difference.

As an investor, you may also make money on the difference between buy and sell. The difference is there is an value add elements to that. Say you invest into a listed company. That money is used to grow the company, research new products, expansion etc. All these actually add values to humanity and society.

In other words, an investor looks for good investment opportunities to grow their wealth. While a trader looks for market pricing to make easy money.

There are many investment opportunities out there. From real estate, equities, commodities, oil, gas, land – in my opinion you can create huge amount of wealth just by mastering one. For me, I did quite an amount of work on equities. Though I’ve not master it yet, I intend to be a master of it.

Whichever investment opportunities you decided upon, there are a few investment principles that will never change.

Learn The Trade

Majority of those who lost money in investment don’t know or understand what they actually invest in. Isn’t it true for those who invested into Minibond? There are many other examples of ignorant investors losing their money.

Few months ago there was a company presenting a Land investment opportunity to me. It’s a big company here in Singapore, but I shall not name it here. I turn that down simply because I do not know enough. Yes, I do know how the company do with the land. But I do not know enough of “land knowledge” to make a buying decision. I do not know based on what factors, the company make a buying or selling decision.

Learn what you need to learn. Master everything you need to make a great investment decision. Understand that particular market inside out. Research on the companies and industries that you are interested. Find out as much information as you can about the industries, companies and market. Talk to the management to find out the future strategies. Find out how the company make money.

Warren Buffet is the best investor in our time simply because he knows his trade. He knows everything about equity investment. He knows if a business make sense by looking at its financial reports. He never gone into other investment opportunities other than equities. He is really an example of mastery in one.

Make When You Buy Not When You Sell

“Make money when you buy not when you sell.” This statement is from Robert Kiyosaki, author of Rich Dad Poor Dad. I take this as one of my investment principles that guide me in my investment decisions. Some may not agree on this, but I’m not forcing anyone to agree.

Based on Robert Kiyosaki’s idea, this principle applies to investment that generate an income. This means you get your return on investment irregardless whether you are holding or selling the investment.

A simple example will be purchasing a house to rent out for an income. You make money from this investment when you buy it. I met some who change to a bigger house, stay in it and claim that it’s an investment. In their definition, maybe. But in mine, it’s not. They are simply hoping that the price will goes up in the future. This is an example of making money only when you sell.

There are other investments makes you money when you buy. Equities gives dividends. That’s why I’m comfortable with equities because it doesn’t violate my investment rules.

Set Your Investment Rules

Have your own investment rules. The reason why I asked you to discover more about yourself in the first part of this trilogy is so that you can then set your own investment rules. With so many investment opportunities, there will be some that doesn’t suits you. But because of all the temptation out there, you may be tempted to make a silly decision.

Having your own rules helps to filter those investment that doesn’t suits you. One of the rules that I have is the investment must be simple enough to understand. Based on this rule, all the banks and insurance companies are out of my radar. It’s hard to understand the bank businesses. The money is going everywhere and I don’t know where they earn their money comes from.

It may take sometime to set your own rules. I took a few months to set my rules, even till now I’m adding rules after having some investment distinctions.

Hope that you can make money in this economy downturn. Actually I’m so excited in this downturn, as there are tons of undervalue equities to scoop. I hope that you too can see those opportunities.